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Trash: The Newest (and Surprisingly Accurate) Economic Indicator

by Darwin on June 20, 2010

I was initially skeptical upon tuning in to Bloomberg the other day to hear about the latest economic indicator gaining traction – TRASH. However, upon hearing the explanation and of course, the data supporting the hypothesis, it sounds like they may be on to something. And at the current pace of trash generation, the indicator is a bright green – it’s showing that the economy is rebounding, perhaps more strongly than the bears are giving it credit for.

The source article from Bloomberg is here, but in a nutshell, there are the compelling reasons for both using trash as an indicator and why the US economy is viewed as improving. The correlation between growth rates of carloads of trash with year over year GDP growth in the US is extremely high, at 84%. [84% is quite high, higher than most other indicators economists use now, like car sales, coal usage, etc].

For those looking for reason and wondering if perhaps correlation is not causation and this is mere coincidence, the rationale is that as factories are cranking out more widgets, they’re generating more waste. Much of that waste is in the form of scrap metal and other measurable wastes that the Association of American Railroads tracks weekly. Aside from this primary indicator in waste metals, it also stands to reason that residential waste would pick up as consumers are buying more crap as we’re prone to do. Heck, buying a simple 1 inch camera card now requires industrial cutters to get through the 10 inch high density polymer package. This waste all ends up being tracked and counted.

Now, not to be confused with a leading indicator in which to go mortgage the house on thinking you have insight nobody else does, this is actually a concurrent indicator, but it manifests itself in real-time whereas GDP is published only at the end of a quarter. In short, these trash numbers will tell you with relatively high assurance, what the economy is doing now, before the GDP numbers are published, but trash growth won’t necessarily tell you what the economy is going to be doing in 6 months. For that is the holy grail of economics.

A lot of waste is also generated when homes are forclosed. The people either trash a lot before they move or the banks come in and have to clean them out afterwards. A lot of trash is also created when a business shuts down. Another factor to consider is where that trash was purchased. People who can no longer to afford to shop at upscale stores still create trash (perhaps more) from their Dollar store and Wal-Mart purchases.